Dec. 8 (Bloomberg) -- Greg Maffei, the chief executive
officer of Liberty Media Corp., reaped about $245 million in
option profits ahead of time under a company plan that
anticipates Congress will lower corporate tax rates next year.

Liberty Media and Liberty Interactive Corp., both of which
are based in Englewood, Colorado, moved up the date that Maffei
and other employees were allowed to cash in options on millions
of shares, according to filings yesterday and Dec. 6 with the
U.S. Securities and Exchange Commission. Maffei and the others
used the resulting profits to buy restricted shares from the
companies.

Both companies said they undertook the transactions earlier
in the week “based on the belief that the corporate tax rate
will decrease in 2013 and beyond,” thereby reducing the value
of related deductions. Republican Mitt Romney championed lower
corporate taxes in his losing campaign for the presidency, and
President Barack Obama and Congress may not lower corporate
taxes as they wrangle over ways to cut the budget deficit.

Liberty Media “must possess a clearer crystal ball than
anyone else has in Washington because it’s very up in the air,”
said Dean Zerbe, a former senior tax counsel for the Senate
Finance Committee who is now national managing director of
Alliantgroup, a Houston-based tax-services firm for businesses.
“There is not as much zeal as you would have seen if Romney had
gotten in.”

Compensation Expense

Liberty Interactive, whose assets were formerly owned by
Liberty Media, carried out the same transactions with executives
who hold options on its Class A shares and those of yet another
affiliate, Liberty Ventures, according to a separate filing.
Maffei is the CEO of both Liberty Media, the owner of the cable
network Starz LLC, and Liberty Interactive, which participates
in the video and online-commerce industries, though the two
companies are now separate.

U.S. companies get to treat employee profits from stock
options as compensation expense that can be deducted from
income, resulting in lower corporate tax bills. Liberty Media
and Liberty Interactive will benefit from the stock transactions
by receiving the compensation deduction at a potentially higher
corporate tax rate than in the future, the companies said in
their filings.

“Liberty Media and Liberty Interactive have effected
transactions with respect to outstanding employee stock options
in a manner that is consistent with the company’s historical
goal of minimizing the company’s taxable income,” the companies
said in an e-mailed statement. Whit Clay, a spokesman, declined
to comment beyond the statement.

Starz Spinoff

As a result of the option exercises, Liberty Media expects
to record deductions for compensation expense totaling $358
million this year, producing an estimated cash tax benefit of
$129 million, according to its filing. Liberty Interactive
expects to record deductions for compensation expenses totaling
$242 million, generating benefits of about $85 million, the
company reported in a separate filing.

Many of Liberty Media’s employees will work for Starz after
the parent company spins off its other assets, a move that is
scheduled to take place by year-end, according to yesterday’s
filing. Starz will have “limited amounts of taxable income” to
use the stock-option deductions, so having employees exercise
the securities ensures that Liberty Media can take advantage of
the benefits.

President Obama is negotiating with Congressional
Republicans to avert the so-called fiscal cliff, a series of tax
increases and spending cuts set to take effect in January. Obama
has pushed to raise the personal income tax rate for top earners
to 39.6 percent from the current 35 percent.

‘Good Bet’

When executives exercise options to purchase shares below
their current market price, the resulting paper profits are
taxed as ordinary income, even if the person holds onto the
shares and doesn’t realize any gains. As a result, Maffei would
benefit from the early exercise of options should Congress agree
to raise the rate on top earners or reduce the deductions they
can take on charitable gifts or interest payments on home
mortgages, said Alan Johnson, the head of Johnson Associates
Inc., a New York-based compensation consulting firm.

“I would think this is being done to benefit the
executives,” Johnson said in a telephone interview. “While
it’s not clear that the corporate rate will go down, it’s a good
bet that high-end individual rates will go up.”

Maffei earned paper profits of $340.4 million by exercising
options on 10.3 million Liberty Interactive shares, 515,681
Liberty Ventures shares, and 2.78 million Liberty Media shares,
according to SEC filings. About $245.2 million of these gains
came from options that had yet to reach the date on which they
originally could be exercised.

Liberty Media and Liberty Interactive accelerated the
vesting dates on the options, allowing Maffei and the others to
take the gains before year-end. The executives used the profits
to buy restricted shares from the companies at current market
prices, and also received additional options, according to the
filings.